Aid and Good Governance

A Discussion Paper for The Reality of Aid

Kavaljit Singh

January 2003

2

Note from the Management Committee for The Reality of Aid

In preparation for the 2004 Reality of Aid global report, the Management Committee for the project commissioned two background papers to inform reflection and discussion among network members on the theme of “governance and the promotion of rights in international cooperation and aid”. This paper by Kavaljit Singh is complemented by a paper by John Foster of The North South Institute (Canada), “Crisis time: repossessing democratic space”. Both papers are available on the web site for The Reality of Aid at www.realityofaid.org. The Management Committee acknowledges funding for the commission of these papers from the International Development Research Centre (IDRC) via the Canadian Council for International Cooperation, a participating coalition in the global network and member of the Management Committee.

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Introduction

In recent times, the terms ‘governance’ and ‘good governance’ have become buzzwords

in the development discourse. Strong arguments have been proffered from various

quarters that without ‘good governance’ structures, the poor and the developing countries

cannot achieve economic growth or reduce poverty. Bad governance is being increasingly

viewed as the main cause behind all ills confronting these societies. By linking

governance as a conditionality for development aid, the international donor community

has given prominence to governance issues.

Pushed by powerful international financial institutions, ‘good governance’ has become

the cornerstone of development cooperation. The World Bank, in particular, has been a

leading votary of ‘good governance.’1 Nowadays it is difficult to come across aid

packages of multilateral financial institutions and bilateral donors that do not use the term

‘good governance’ and contain ‘governance’ conditionalities. There have been several

instances in the past few years where aid packages have been suspended on account of

“poor governance.” Sierra Leone, Cameroon, Haiti, Fiji, Liberia and Zimbabwe are

recent examples. Several transnational corporations (TNCs) and international fund

managers have also pulled out from countries (for instance, Burma and Malaysia) that

they perceived as “poorly governed.” To examine the shift in the policies of international

aid community, particularly of the international financial institutions (IFIs), towards

‘good governance’ both as an objective and a precondition for development aid, let us

begin by defining the concept of ‘governance’.

Defining ‘Governance’ and ‘Good Governance’

Notwithstanding popular usage of terms ‘governance’ and ‘good governance,’ these are

not amenable to precise definitions. The development aid community is yet to adequately

define the contours of ‘governance’ and ‘good governance.’ ‘Governance’ may imply

different things to different people who have very little in common in terms of their

worldview, ideology and class status. From NGOs and community organizations to

powerful states and multilateral institutions— all swear by governance. The grounds for

supporting ‘governance’ are as diverse as their avowed proponents. As a result, one finds

1 It is important to stress here that the World Bank is not the only multilateral aid agency promoting ‘good

gover-nance. Other important multilateral and regional developmental agencies actively promoting

governance issues include IMF, UNDP, OECD, EBRD, etc. For instance, the Asian Development Bank

was the first regional development bank which adopted an official ‘governance’ policy in 1995. In addition,

a host of bilateral donors [for instance, the US Agency for International Development (USAID), the British

Department for International Development (DFID) and the Swedish International Development

Cooperation Agency (SIDA)] spend millions of dollars each year to support ‘governance’ related programs

in several third world countries. Many of these bilateral donors have also constituted special units to coordinate their governance-related activities. Unfortunately, the governance agenda of bilateral donors

continues to be set by the IFIs. Private foundations are also not lagging behind. For instance, the Open

Society, founded by financier, George Soros, is actively promoting democracy and governance related

projects in Central and Eastern Europe.

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that a variety of definitions, often at cross-purposes, are being used to describe

‘governance,’ thereby further confounding the concept.

Technically speaking, the term ‘governance’ has been derived from the Greek word,

kybernan, meaning “to steer and to pilot or be at the helm of things.” American Heritage

Dictionary (2000) defines governance as “the act, process, or power of governing.” Put

simply, ‘governance’ means the process of decision-making and the process through

which decisions are implemented. The concept of ‘good governance’ conveys the

qualitative dimension of governance. Attempts to define what constitutes good or bad

governance have failed in the past because concepts and processes of ‘governance’ vary

from country to country. For instance, what is considered corrupt practice in one country

(for example, insider trading, tax evasion, money laundering, etc.) may be considered as

normal business practice in another. Due to lack of precise definition, the debate over the

use of term ‘governance’ instead of government remains inconclusive.2

Box 1: Leading Voices on ‘Governance’ and ‘Good Governance’ “Governance is the manner in which power is exercised in the management of a country’s economic and

social resources for development. Good governance … is synonymous with sound development

management.” — World Bank and Asian Development Bank3

“The term governance, as generally used, encompasses all aspects of the way a country is governed,

including its economic policies and regulatory framework. Corruption is a narrower concept, which is often

defined as the abuse of public authority or trust for private benefit. The two concepts are closely linked: an

environment characterized by poor governance offers greater incentives and more scope for corruption.

Many of the causes of corruption are economic in nature, and so are its consequences – poor governance

clearly is detrimental to economic activity and welfare.” — IMF.4

“Good governance means ruling justly, enforcing laws and contracts fairly, respecting human rights and

property rights, and fighting corruption. Encouraging economic freedom means removing barriers to trade

with neighbors and the world, opening the economy to foreign and domestic investment and competition,

pursuing sound fiscal and monetary policies, and divesting government from business operations. Economic freedom also means recognizing that it is the private sector that creates prosperity, not central

planning or bureaucracies.” — Paul O’Neill, till recently Treasury Secretary of the US.5

2 Some analysts have offered plausible economic and political reasons for the use of term ‘governance’

instead of government. According to Sophal Ear, a former World Bank official, “the phenomenal rise of

governance as opposed to government, in a normative context, may also have a great deal to do with its

more palatable sound—to say “bad government” to a Prime Minister is akin to telling him he is a “bad”

person. While to say that hisgovernment suffers from bad governance sounds more diplomatic—and international financial institutions (IFIs)like the World Bank and the IMF are, if nothing else, diplomatic

organizations.”

3 Asian Development Bank, “Governance Bank Policies,” Operations Manual, Section 54, Asian

Development Bank, Manila, January 13, 1997; World Bank, Governance and Development, World Bank,

Washington DC,1992. p.1.

4IMF, “The IMF and Good Governance,” A Factsheet, August 31, 2002, p. 1. 5 The Economic Times, December 17, 2002, p.7.

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“Open, democratic and accountable systems of governance, based on respect for human rights and the rule

of law, are preconditions for sustainable development and robust growth” — G8, Final Communiqué,

2001.

In the World Bank’s definition, ‘governance’ encompasses the form of political regime;

the process by which authority is exercised in the management of a country’s economic

and social resources for development; the capacity of governments to design, formulate

and implement policies and discharge functions. The Bank has defined ‘good

governance’ with six main characteristics:

1. Voice and accountability, which includes civil liberties and political stability;

2. Government effectiveness, which includes the quality of policymaking and

public service delivery;

3. The quality of regulatory framework;

4. The rule of law, which includes protection of property rights;

5. Independence of the judiciary; and

6. Curbing corruption.6

As evident from the above-mentioned characterization, the Bank tends to equate

‘governance’ within the ambit of government with an emphasis on corruption,

transparency, participation and rule of law. Hence, the Bank’s governance-related

programs are concerned with public sector management, public administration,

downsizing of bureaucracy and the privatization of state-owned companies. Without

belittling the importance of these measures, the fact remains that such a narrow approach

cannot help in understanding the myriad issues related to the concept of ‘good

governance.’ The Bank as well as international donor community is oblivious to the

relationship between ‘good governance’ and attainment of basic economic, social and

political rights. With an emphasis on technicalities, the important issues related to politics

and power relations both within and among nations are not given due attention. In fact, it

is due to the World Bank’s financial clout and intellectual hegemony, its definition of

‘good governance’ has gained wider currency within the dominant academic, diplomatic

and development cooperation circles.

Broadening the Discourse on Governance

Given the fact that the dominant discourse on good governance is increasingly becoming

superficial and constricted with a sole emphasis on state institutions and structures, the

time has come to broaden the concept to include all formal and informal actors who play

a role in decision-making or in influencing the decision-making process. Viewed in

totality, the notion of governance would encompass all non-state actors including markets

and civil society. Therefore, it stands to reason that governance issues should also be

addressed to the corporate world, financial markets, multilateral financial institutions,

6 Daniel Kaufmann, Aart Kraay, and Pablo Zoido-Lobaton, “Aggregating Governance Indicators,” Policy

Research Working Paper, No. 2195, World Bank, Washington DC, October 1999; and Daniel Kaufmann,

Aart Kraay, and Pablo Zoido-Lobaton, “Governance Matters,” Policy Research Working Paper, No. 2196,

World Bank, Washington DC, October 1999.

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multilateral trade bodies, bilateral donor agencies, media, religious groups, political

parties, NGOs, trade unions, etc.

In the new global setting, corporate governance issues need far greater attention than ever

since corporate globalization unleashes forces with no public accountability. There are

over 63,000 parent transnational corporations (TNCs) with over 8,00,000 foreign

subsidiaries. Besides, corporations are increasingly taking control of industries and

services previously run by governments, without shouldering public responsibilities. As

pointed out by Robert A G Monks and Nell Minow in their book, Power and

Accountability, “corporations determine far more than any other institution the air we

breathe, the quality of the water we drink, even where we live.

Yet they are not accountable to anyone.” The 1984 accident at Union Carbide’s factory in

Bhopal (India), in which 6,000 people were killed and over 1,50,000 suffered grievous

ailments, is a grim reminder that exempting the corporate world from the purview of

governance and accountability could lead to large-scale human and environmental

catastrophe. The Bhopal disaster is one of the examples of the double standards displayed

by the TNCs regarding consumer protection, environmental and employment concerns in

their home and host countries.

In the contemporary world, the revenues of several TNCs far exceed the GDP of many

countries. For instance, the total revenue of Exxon Mobil in the year 2000 was more than

the GDP of each of 113 countries including New Zealand, Indonesia, Malaysia and

Thailand. The giant corporations account for about three-quarters of the world’s

commodity trade. Studies have pointed out that TNCs often form trade cartels and

indulge in manipulative transfer pricing causing substantial loss of tax revenue and

foreign exchange to the poor and the developing world. Although anti-corporate activists

have been demanding wider corporate accountability for decades, corporate governance

was never on the agenda of international financial institutions, powerful states and

corporate entities. It is only in the aftermath of a series of financial scandals that rocked

corporate America in 2002 (for instance, Enron, WorldCom, Xerox, Global Crossing,

Tyco International, Adelphia Communications, among others) that the issues of corporate

governance came into prominence in policy circles. It is important to stress here that this

is not the first time that scandals and frauds have gripped corporate America. But what is

amazing this time is that CEOs, directors, investment bankers, fund managers, auditors,

and market analysts are all part of the unholy nexus.

Despite much-touted claims of corporate transparency and disclosures, the basic norms of

governance were completely flouted in all these scams. The corporate governance

problem is so widespread that almost 1,000 American corporations have restated their

earnings since 1997. Notwithstanding the regulations laid down by the US regulatory

authority, Securities and Exchange Commission (SEC), almost every big American

corporation had its corporate code of ethics, while at the same time they repeatedly

violated their own codes. These unsavory episodes have put a serious question mark on

the relevance of code of ethics. It has also patently exposed the systemic flaws in the

highly acclaimed American model of governance based on self-regulation. At another

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level, these scandals have also demolished the popular myth that corruption is only

limited to the public sector. The private sector, particularly big corporations are as much

mired in corrupt practices. Corruption is a widespread phenomenon, not merely restricted

to the poor and the developing world.

By limiting the concept of good governance to the right to vote and other components of

political democracy, wider issues such as control over wealth and power, domination by

TNCs and finance capital, the control of IFIs and World Trade Organization (WTO) by

powerful states, and inequalities and asymmetries within and among nations are not being

addressed as issues of governance. For the vast majority of people, good governance also

means a better quality of life; an equitable distribution of wealth, income and natural

resources; dismantling of highly concentrated structures of property ownership; full

employment; access to housing, health and education; restraining privileges of elites; the

right to choose alternatives; cultural development and so forth.

A good governance system is the one under which all public policy affairs are managed

through broad consensus in a transparent, accountable, participatory and equitable

manner. However, such an ideal system of good governance remains a far cry in the

developed world, leave alone the poor and the developing world. Hence, governance

cannot be an end in itself. It is an evolving process and has the potential to become a

potent instrument for radical transformation provided it is applied in all spheres of social

life. Like democracy, good governance cannot be implanted or imposed by the donor

community, it has to be imbibed, nurtured and cherished from within. That is why recent

efforts to impose universal blueprints have not yielded positive results.

The Soaring Graph of ‘Good Governance’ Agenda

The World Bank first used the concept of good governance in its 1989 report, Sub-

Saharan Africa: From Crisis to Sustainable Growth, in which it characterized the crisis

confronting the region as a “crisis of governance” and linked ineffectiveness of aid with

governance issues. Since then, Africa has become the epicenter of debates on

governance. In the following years, the Bank enlarged its policy arena by including good

governance as a core element of its development strategy. However, the major

ideological push towards good governance a condition for aid loans was formulated by

the World Bank in its 1998 report, Assessing Aid: What Works, What Doesn’t, and Why.

In this report, the Bank explained the interaction between development aid and the

quality of governance. The report forcefully argued that the impact of aid on growth

depends on “sound economic management” and effective institutions. The report

endorsed a selective approach to the disbursement of aid based on policy performance

and reform commitment, rather than on the extent of poverty or developmental needs of a

borrowing country. The report also called upon the Bank to give more financial resources

and expertise on governance issues for realizing development goals in the member-

countries.

In consonance with the new thinking, the Bank has carried out amendments in its

operational guidelines to give more importance to good governance in its lending

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programs. Since 1999, the Bank has also been carrying out Institutional and Governance

Reviews (IGR) to assess the quality of governance. Recently, the World Bank has

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Box 2: Good Governance in Poverty Reduction Strategy Papers (PRSPs)

Benin: “Improve governance... national anti- corruption strategy... reforming the civil service and...

quickening the pace of decentralization.”

Bolivia: “Modernize the State and fight corruption... reform of the judicial system... promote the

participation of the private sector in areas previously assumed by the public sector... reduce red tape and bureaucracy in public entities,... decentralization ... transfer political power to municipal governments.”

Burkina Faso: “Redefinition of the role of the State... promote good governance... accelerate re-forms to

strengthen democratic forums and promote the efficient management and transparency of government

finance... local governance... combat corruption... reform of the judicial system... de-centralization...

comprehensive reform of the civil service... better management of public finances.”

Ethiopia: “Decentralization and empowerment, judiciary and civil service reform, and institutional

capacity building. Judicial and civil service reform will have the effect of encouraging private sector in

particular, while decentralization and empowerment will mainly encourage the small-holder farmer.”

Guyana: “Good governance and an improved business environment are essential for accountability,

transparency and the restoration of business confidence... In the public sector, the goal will be the efficient

delivery of services to the private sector by all government ministries and agencies… Government will eliminate redundant positions and reduce vacant positions in the establishment from over 25,000 to

12,000.... improving the rule of law.”

Kenya: “Good governance is a fundamental building block of a just and economically prosperous society

and therefore, is an essential component of action to reduce poverty.... A sustained drive against

corruption... reforming the public service... reduced workforce... restructuring and retrenchment...

Completion of the civil service retrenchment exercise to reduce the service by at least 48,000.”

Mali: “Creating an enabling regulatory, legislative, and institutional framework;... strengthening

democracy and the rule of law; implementing the decentralization policy... public sector restructuring and

privatization... good governance... fight to end corruption.”

Malawi: “Civil service reform... retrenchment of 20,000 temporary employees... improve financial

management and accountability... good governance... decentralization process... democratic environment...

rationalizing government ministries, departments, and agencies... improve financial management and

accountability.”

developed governance indicators to measure governance in more than 150 member-

countries.7

Apart from the fact that the quality of governance cannot be measured in

quantitative terms, the problem with governance indicators is that they are mostly geared

towards foreign investors and lenders for assessing political risks in countries where they

invest, instead of addressing these issues to people at large for whom governance really

matters. Further, these indicators have yet to demonstrate a linear relationship between

the quality of governance and development goals. For instance, how better rule of law

contributes towards lowering illiteracy and infant mortality rates?

The World Bank and the IMF are relying on traditional approaches of punitive

conditionalities to promote governance and institutional reforms. The growing interest of

IFIs on the question of good governance is amply reflected in several Poverty Reduction

7 The history of quantitative measures of governance dates back to 1955 when a US-based foundation, Freedom House, published a report, Freedom in the World, which covered political rights, civil liberties,

and freedom of the press. The foundation publishes this report every year. Currently, an international NGO,

Transparency International, is also bringing out a Corruption Perception Index that deals with corruption

and public sector reforms. In recent years, a number of bilateral donors have published handbooks and

issued guidelines on governance indicators.

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Strategy Papers (PRSPs)8

(see Box 2). Besides the IFIs, a number of other agencies (for

instance, UNDP) have jumped onto the bandwagon of good governance. Several major

bilateral donor agencies are increasingly following the performance-based allocation

system under which the allocation of aid is linked to the government’s performance in

terms of reducing poverty. At the UN Conference on Financing for Development at

Monterrey (Mexico), the US President, George Bush pledged an additional five billion

dollars in aid beginning in 2004 to countries which undertake political, legal and

economic reforms.9

In the recently launched New Partnership for Africa’s Development

(NEPAD) initiative, the linkages between poverty reduction and good governance have

been made explicit.10

The recent international initiatives aimed at reducing debt burden

of the poorest countries (including the Köln Debt Initiative and the Highly Indebted Poor

Countries Initiative) also link debt relief with governance reforms.

In addition, the agenda of good governance and structural conditionality has played a

prominent role in the G-8 Summits. The G-8 leaders have encouraged the IFIs to take an

active role in governance reform and institutional development in the borrowing

countries through lending, investment and technical assistance activities. By

concentrating solely on the quantitative aspects of conditionality and performance

indicators, G-8 leaders have not paid adequate attention to the content of conditionalities

and the manner in which these are imposed on the borrowing countries. It appears that the

G-8 leaders have abandoned long-standing issues such as the reform of the international

financial architecture and internal governance of the IFIs, which were brought into center

stage in the aftermath of the Southeast Asian financial crisis in 1997. The shift in the

policies of international aid community, particularly of the IFIs, towards good

governance, both as an objective and a precondition for development aid, is a disturbing

phenomenon and needs to be rigorously questioned.

8 The IMF and the World Bank in their Annual Meetings embarked on PRSPs in September 1999. They

replaced structural adjustment programs as the new pre-condition for loans and debt relief. The Enhanced

Structural Adjustment Facility (ESAF) of IMF has been replaced by the Poverty Reduction and Growth

Facility (PRGF), and the PRSPs have become an integral component of the Heavily Indebted Poor Country (HIPC) initiative and a precondition for access to the Poverty Reduction Support Credit (PRSC) introduced

by the World Bank in 2001. PRSPs have now become a condition for most development aid to the world’s

poorest countries. The IFIs have also pushed other donors (for instance, European Union) to link their aid

to Poverty Reduction Strategies. PRSPs were supposed to mark a major shift. Borrowing countries were to

design their own development strategies, and these were to be more explicitly focused on poverty

reduction. Besides the involvement of IFIs, borrowing countries were supposed to seek broader

participation of civil society and other stakeholders in the preparation of I-PRSPs (Interim PRSPs) and

PRSPs. However, in reality, PRSPs are not different from earlier structural adjustment programs

as their core economic elements consist of deregulation, privatization, liberalization and rolling back of

state. Critics have also pointed out that borrowing countries write into the PRSPs what would be acceptable

to the donors. 9 George W Bush, “Remarks by the President at United Nations Financing for Development Conference,

Monterrey, Mexico,” March 22, 2002.

10 NEPAD is based on the concept of mutual accountability and calls for a new “compact” between African

countries and external donors. It calls for African countries to undertake drastic political and economic

reforms and in return, external donors would provide aid, debt relief and market access.

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Good Governance, Washington Consensus and Second Generation Reforms

Any analysis of good governance would remain incomplete without acknowledging the

prominent role of neo-liberal economic policy package, known in popular parlance as

Washington Consensus.11

It is no coincidence that the concept of good governance

gained currency when market-oriented structural adjustment programs pushed by the IFIs

in the poor and the developing world were increasingly coming under public scrutiny and

criticism. In fact, good governance agenda is deeply embedded in the neo-liberal

Washington Consensus.

The benefits assured by Washington Consensus are yet to be realized in spite of its

implementation in over a hundred countries in the last two decades. While the negative

consequences of this global policy regime at the macroeconomic level as well as on the

lives of poor people have been well documented and therefore need no elaboration here.

Based on the neoclassical economic model, adjustment policies failed miserably to

achieve stated objectives of higher economic growth and reduction in poverty. Rather,

these policies contributed in no small measure towards worsening of income inequalities

in the countries that vigorously implemented them. Instead of accepting the failure of

neo-liberal economic policies, the IFIs shifted the blame on the tardy application of

policies in the borrowing countries. By blaming the poor institutions for the failure of the

Washington Consensus, the IFIs paved the way for institutional and political reforms

through aid conditionalities in the borrowing countries.

The borrowing countries are being advised to complement economic reforms (also

known as first generation reforms) with institutional and political reforms — with what

are known as second-generation reforms.12

Since first-generation conditionalities were

aimed at liberalizing the economy (“getting prices right”), the second-generation

conditionalities refer to redesigning the state and its institutions (“getting institutions

right”) to ensure smooth development of market economy. These second-generation

conditionalities have been labeled “structural conditionality” by the IMF and

“governance conditionality” in the case of the World Bank.

It is important to emphasize here that the governance agenda reinforces the Washington

Consensus through institutional and political conditionalities. Since markets do not

function in a vacuum, a rule-based legal regime is necessary for the smooth functioning

11 The term ‘Washington Consensus’ was first coined by the US economist John Williamson to refer to

policy package pushed by the powerful Washington-based institutions, namely, the World Bank, IMF, the

US Treasury and neo-liberal think-tanks. Initially aimed at Latin American countries in the 1980s,

Washington Consensus was subsequently extended to the rest of the developing world. The important components of the Washington Consensus were fiscal discipline; trade liberalization; liberalization of

foreign investment regime; financial liberalization and capital account liberalization; privatization;

deregulation; tax reforms; labor reforms; market-based exchange rate; and protection of property rights.

12 A US-based economist, Dani Rodrik, has examined this issue in an institutionalized context. See Dani

Rodrik, “Institutions for High-Quality Growth: What They Are and How to Acquire Them?”, a paper

presented at the IMF Conference on Second Generation Reforms, Washington DC, November 8-9, 1999;

and Dani Rodrik, “After Neo-liberalism, What?,” in After Neo-liberalism: Economic Policies that Work for

the Poor, New Rules for Global Finance Coalition, Washington DC, October 2002.

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of markets. Legal and institutional reforms are oriented towards securing private property

rights, enforcing contracts and expansion of private sector. In the present context of

globalization, diverse forms of legal, administrative and political systems are considered

as impediments in the smooth functioning of a global economy. That is why the

International Financial Institutions and the WTO are insisting on harmonized national

political, institutional and legal processes in order to ensure smooth operations of

transnational capital. The new emphasis on “sound economic management” may appear a

laudable goal but it is nothing more than a rigid adherence to fiscal austerity measures.

Even the limited concerns for safety nets are attempts to contain mass uprisings against

the neo-liberal economic order rather than making people economically independent and

empowered. Thus, governance reforms, as promoted by these institutions, are actually

oriented towards strengthening market reforms instead of genuine democratization and

attainment of human rights. Consequently, promotion of good governance has become an

integral part of the emergent global economic order.

A recent report by the UNCTAD titled, From Adjustment to Poverty Reduction: What is

New?, critically examines the new agenda in the context of poverty reduction in Africa.13

Based on an appraisal of 27 PRSPs in Africa, the report concluded that the macro-

economic policy content of the PRSPs shows “no fundamental departure from the kind of

policy advice espoused under what has come to be known as the “Washington

Consensus.” Efforts aimed at re-examining the governance issues should fundamentally

question the orthodoxy of the Washington Consensus that has dominated economic

development paradigm since the 1980s.

IFIs and Governance Conditionalities

Conditional aid is not a new phenomenon. But when aid is used by the external aid

agencies to fundamentally alter the institutions and processes of governance in the

borrowing countries, it raises several pertinent questions. As in the case of economic

reforms, the IFIs are using aid.14

The range of Bank’s programs with governance related

conditionalities include public sector reforms, transparency, civil service reforms,

decentralization of delivery system, and legal and judicial reforms. In the case of the

IMF, the share of programs with structural conditions and the average number of

conditions per program have increased significantly during 1989-99. According to the

IMF’s 2001 report titled, Structural Conditionality in Fund-Supported Programs, the

share of programs with structural conditions has increased from 60 to 100 per cent and

the average number of structural conditions per program has increased from 3 to 12. On

13

UNCTAD, From Adjustment to Poverty Reduction: What is New?, New York and Geneva, 2002, p. 6. 9

conditionalities to promote good governance in the borrowing countries. With the enlargement of the

governance agenda in the eighties and the nineties, the scope of governance conditionalities has also

expanded, particularly in mid 1990s. Since 1996, the Bank has launched over 600 governance related

programs and initiatives in 95 countries and is currently involved in several governance and public sector

reforms in over 50 countries. 14 Development Committee, “Note from the President of the World Bank,” Prague, September 18, 2000,

p.4.

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behalf of G-24, Devesh Kapur and Richard Webb have carried out a comprehensive study

of governance related conditionalities of the IFIs.15

They pointed out that governance related conditionalities represent the bulk of the

conditions imposed by the IFIs during 1997-99 – on an average 72 per cent in Africa,

58 per cent in Asia, 59 per cent in Central Asia and Eastern Europe, and 53 per cent in

Latin America and the Caribbean (see Tables 1 and 2). In addition, the report noted that

under a narrow definition of conditionality, the burden is most acute in Central Asia and

East Europe, whereas a broader definition of conditionality places the greatest burden on

sub-Saharan Africa.16

Table 1: The Burden of Conditionality

Conditionality Strictly Defined

Conditionality Loosely Defined

Total

Conditions

(Average)

Of which

governance

related

conditions

As a

percentage

of total

conditions

Total

Conditions

(Average)

Of which

governance

related

conditions

As a

percentage

of total

conditions

Africa

23 9 39% 114 82 72%

Asia

17 4 24% 84 49 58%

Central Asia &

East Europe

36

4

11%

93

55

59%

Latin America

33

13

39%

78

41

53%

Source: Devesh Kapur and Richard Webb, Governance-Related Conditionalities of the International

FinancialInstitutions, UNCTAD, G-24 Discussion Paper Series 6, UNCTAD, New York and Geneva,

2000. Data based on IMF Letters of Intent and Policy Framework Papers (PFPs) between 1997 and 1999

for a sample of 25 countries that had a program with the IMF in 1999: Africa: Cameroon, Djibouti,

Gambia, Ghana, Guinea, Madagascar, Mali, Mozambique, Rwanda, Senegal, Uganda, Tanzania, Zambia;

Asia: Cambodia, Indonesia, Republic of Korea, Thailand; Central Asia and East Europe: Kazakhstan,

Kyrgyzstan, Latvia, Romania; Latin America: Bolivia, Brazil, Nicaragua.

According to Kapur and Webb, “even if conditionality is interpreted narrowly, its burden

on borrowers has grown significantly. The average number of criteria for a sample of 25

countries having a program with the IMF in 1999, with programs initiated between 1997

and 1999, is 26. This compares to about six in the 1970s and ten in the 1980s.”17

To

illustrate the domination of governance conditionalities, the authors cited the case of

IMF’s 1997 program with Indonesia that contained 81 conditions, of which 48 pertained

to governance. While a similar IMF program in 1999 with Kyrgyzstan contained 97

15 Devesh Kapur and Richard Webb, Governance-Related Conditionalities of the International Financial

Institu-tions, UNCTAD, G-24 Discussion Paper Series 6, UNCTAD, New York and Geneva, 2000, p.4. 16 Ibid. 10 17 Ibid.

14

governance related conditions out of a total 130 conditions. Interestingly, most of the

conditionalities were related to the fiscal sector.

Table 2: Examples of the Burden of Governance Conditionality

Conditionality Strictly Defined Conditionality Loosely Defined

Region

Country

Total

Governance

related

conditions

As a

%age

Total

Governance

related

conditions

As a

%age

Africa Mali 26 13 50% 105 67 64%

Mozambique 22 12 55% 74 58 78%

Senegal 27 9 33% 165 99 60%

Zambia 18 6 33% 87 59 68%

Asia Cambodia 30 9 30% 83 65 78%

Indonesia 18 8 44% 81 48 59%

Rep of Korea 10 4 40% 114 44 39%

Kazakhstan 27 17 63% 114 69 61%

Eastern Albania 43 33 77% 72 47 65%

Europe Latvia 28 20 71% 65 28 43%

Romania 43 25 58% 82 34 41%

Latin Brazil 38 21 55% 89 45 51%

America Bolivia 32 21 66% 95 44 46%

Nicaragua 29 18 62% 50 34 68%

Source: See Table 1 above

The Problem with Governance Conditionalities

The shift towards promoting good governance both as an objective and a precondition for

development aid in the borrowing countries is misconceived. Firstly, the shift indicates a

radical departure of the IFIs from their traditional responsibilities as mentioned in their

Articles of Agreement.18

Secondly, it is debatable as to whose governance should

actually be questioned. Unfortunately, the dominant debate within the international aid

community has been on the quantum of aid and conditionality for supporting policy

reforms, without fundamentally questioning the raison d’etre of aid conditionality. The

recent experience is a grim reminder that aid conditionality cannot be an appropriate tool

for achieving the intended objectives. In a series of articles on this issue, Carlos Santiso

has questioned the effectiveness of conditional aid in altering the institutions of

governance in the borrowing countries.19

18 There is an ongoing debate about the proper demarcation of responsibilities between the IMF and the

World Bank, popularly known as “mission creep,” because of the Bank’s involvement in governance issues

and IMF’s involvement in poverty reduction programs have led to significant encroachment on each other’s

traditional institutional turfs. In addition, since governance issues are political issues, these should fall

outside the mandate of the IFIs as their founding charters prohibit political considerations in designing the

aid programs. 19 Carlos Santiso, “Good Governance and Aid Effectiveness: The World Bank and Conditionality,” The

Georgetown Public Policy Review, Vol.7, Number 1, Fall 2001, pp.1-23; and Carlos Santiso, “International

Cooperation for Democracy and Good Governance,” European Journal of Development Research, Vol.13,

Number 1, 2001, pp.154-180. See also Judith Randal, Tony German and Deborah Ewing, The Reality of

Aid 2002: Focus on Conditionality and Ownership, Manila: IBON, 2002.

15

Recent experience with aid conditionality in the context of adjustment lending has

confirmed that conditional aid had very limited influence in their successful

implementation. A study by Paul Mosley, Jane Harrigan and John Toye on the World

Bank’s policy lending has demonstrated that there is no discernible relation between the

intensity of conditionality and success in implementation of promised reforms.20

This

finding has been substantiated by the World Bank’s own case-studies on aid and reforms

in African countries which state that aid cannot buy reform and that the conditionality

attached to adjustment loans failed to induce policy changes.21

On the other hand, there are several instances where externally enforced economic and

political reforms through the instrumentality of conditional aid have seriously

undermined the domestic democratic processes in the borrowing countries. Based on a

study of adjustment lending in South East Asia and Latin America, Tony Killick has

debunked the notion that conditionality can “buy” better policies and promote sound

governance institutions.22

The Bank’s own researchers have also reported that aid

dependence can significantly undermine the quality of governance in the borrowing

countries. In an empirical study on aid dependence and quality of governance, Stephen

Knack of the World Bank found that aid has led to increased corruption, draining of

scarce talent from the bureaucracy, and weakening of institutional capacity and

accountability.23

Thirdly, it is difficult to measure countries in terms of either good or bad governance. In

reality, most of the poor and the developing countries stand somewhere in between.

Moreover, there is no guarantee that good governance institutions would automatically

lead to reduction of poverty and promotion of sustainable development. We cannot

overlook the fact that poverty, infant mortality and illiteracy rates have remained high in

several countries that have established democratic governance norms and institutions for

decades. For instance, India has not been able to reduce poverty despite having strong

democratic governance institutions and processes such as free press, civil liberties,

independent judiciary and rule of law. On the other hand, one finds that rapid economic

growth and massive reduction in poverty levels occurred in several Asian countries under

poor governance structures and authoritarian regimes.

Despite the growing evidence (emanating from diverse sources including the Bank

researchers) against the effectiveness of conditional aid, the IFIs have yet to revisit their

intellectual moorings and acknowledge that aid conditionality is not a credible

mechanism to usher in policy reforms in the borrowing countries.

20 Paul Mosley, Jane Harrigan and John Toye (eds.), Aid and Power: The World Bank and Policy-based

Lending, Routledge, London, 1991. 21 Shantayanan Devarajan, David Dollar, and Torgny Holgren, Aid and Reform in Africa: Lessons from Ten

Case Studies, World Bank, Washington DC, 2001. 22 Tony Killick, Aid and the Political Economy of Policy Change, Overseas Development Institute, London,

1998. 23 Stephen Knack, “Aid Dependence and the Quality of Governance: A Cross-Country Empirical

Analysis,” PolicyResearch Working Paper, No. 2396, World Bank, Washington DC, July 2000. 12

16

The Limits of Technocratic Approach

The governance reform agenda of the international aid community, particularly of the

IFIs, is problematic on several grounds. Firstly, focused exclusively on improving

domestic institutions, the technocratic approach does not take into account important

external factors (such as protectionism, declining commodity prices, external debt, and

volatile capital flows) that act as major impediments in poverty reduction in the poor and

the developing world.

Secondly, the technocratic approach is based on the premise that liberalization,

deregulation and globalization hold the key to economic growth, which, in turn, would

lead to poverty reduction. The emphasis is on liberalization and deregulation of domestic

financial markets encompassing market determined exchange and interest rates,

liberalization of current and capital accounts, and granting more autonomy to central

bankers and financial regulators. One of the justifications given in favor of market-led

reforms is that they would ultimately benefit poor people, although the IFIs have yet to

demonstrate how financial liberalization helps the poor to come out of the clutches of

poverty. While advocating financial liberalization, microcredit is touted as a panacea for

poverty reduction. However, the success of microcredit programs in reducing poverty is

extremely limited and is usually dependent on other developmental efforts that are

undermined by the adjustment policies (see Box 3).

Freeing of financial regulators from democratic accountability and control, in fact,

exemplifies the growing trend towards technocratic forms of governance goaded by the

IFIs. In particular, the IMF has been vociferously encouraging technocratic control over

economic decision-making (such as independent central bank) as a necessary

precondition for implementing structural adjustment policies. The Fund suspended the

disbursement of a scheduled $400 million loan tranche to Indonesia in 2001 when the

government proposed amendments in the central bank laws in order to enhance its public

accountability whose officials were involved in several corrupt practices in the past. In

several countries, central banks and financial regulators have been granted greater

autonomy to formulate key economic policies and in some countries (for instance,

Argentina and Brazil), fiscal responsibility laws have been enacted to restrain the scope

of fiscal policies. This means that key economic issues such as interest rates, exchange

rates and monetary policies have been left to the discretion of technocrats. Delinking

economic decision-making from the political processes through such technocratic forms

of governance is thoroughly undemocratic as it subverts democratic accountability and

popular participation in policymaking. By handing over key economic policymaking to

unelected and unaccountable central bankers and technocrats, countries lose sovereignty,

which is a sine qua non for a democratic order to flourish.24

24

For a critique of central bank independence and its adverse impact on democracy, see Sheri Berman and

Kathleen R McNamara, “Bank on Democracy: Why Central Banks Need Public Oversight,” Foreign

Affairs, March/April 1999, pp. 2-8. 13

17

Box 3: World Bank, Women’s Empowerment and Microcredit In recent years, the development aid community has pushed microcredit as a panacea for poverty

alleviation. During the recent Microcredit Summit +5 held at New York, tall claims were made as to how

microcredit can alleviate poverty of half of the 1.2 billion people living on $1 per day or less, by 2005. The

World Bank launched the Consultative Group to Assist the Poorest (CGAP) in 1995 to facilitate the

microcredit program in the poor and the developing world. Keeping the CGAP framework in view, the

World Bank has recently launched a project in India, namely, Rural Women’s Development and

Empowerment Project. The entire focus and emphasis of this project is to launch credit programs through

the establishment of self-help groups in India. Thus, women’s empowerment is only seen in terms of

economic development with a narrow focus on credit and income-generation programs. One expects that a project with such a progressive appellation as “Empowerment” should include developmental components

other than credit. Poverty, particularly that of women, cannot be defined only in terms of cash flow since it

has strong linkages with inequitable distribution of resources, unequal power relations, illiteracy, lower

wages, cuts in developmental spending and anti-poor macroeconomic policies that disproportionately affect

the poor women.

In the sphere of rural women’s empowerment, women’s control and ownership over land can play a

significant role in not only economic welfare but, more importantly, in terms of social and political

empowerment as land is a symbol of political power and socio-economic status in rural India. But the

program is totally silent on land issues. Perhaps, the Bank is not interested in a process of women’s

empowerment that addresses the issues of politics, power relations and interest groups. It needs to be emphasized that microcredit is not a substitute of social sector spending and anti-poverty programs. How

beneficial can credit be to poor Indian women if cuts in social services continue to exacerbate women’s

poverty and increase their total labor hours? One is not arguing that credit has no role in alleviating poverty

but what can poor women do with a few hundreds of rupees if they do not have access to education, health

services, training, and child care?

Despite these limitations, the program aims to promote self-employment which is the last option left for the

poor women in India. But the poor women are placed in an extremely disadvantageous position in the

market. How can products of poor women compete with those of big business, which not only have strong

financial backing but also spend millions on advertising, brand selling and marketing? Until and unless the

poor women are provided access to market information, technology, management and marketing skills, their economic ventures are bound to remain uncompetitive.

The “success” of microcredit in reducing poverty is often overly exaggerated. The most common criterion

used by donors in measuring success of microcredit programs is loan repayment rate. Undoubtedly, loan

repayment rate is very high as compared to commercial lending but this does not explain the qualitative

impact of such programs in terms of increasing income flows, levels of employment and sustainability of

businesses. Since lenders are primarily concerned with repayment of loans, vital issues related to the

quality and wider socio-economic impact of such loans have not been given due attention. Empirical

studies reveal that it is not always the poorest of the poor women who get the credit. Those with sizeable

income and assets often corner the biggest chunk of credit. Further, studies have also reported that much of

the credit is used by poor women to meet consumption needs (e.g., food, health, clothing, marriage,

festivals, etc.) rather than investment in businesses, thereby negating the essence of microcredit programs.

Lastly, there are very few instances where microcredit institutions have become sustainable without the

support of donors. One finds that the dependence on donors has further increased with the expansion of

microcredit programs, thereby putting a question mark on the long-term financial sustainability of these

institutions.

18

Implantation of Anglo-American institutions of governance is the overarching theme of

the new agenda. It is based on the assumption that the developed countries have the best

institutions, which should be embedded across the world irrespective of cultural and

historical conditions.

Establishing such uniform blueprints without addressing underlying power relations and

cultural differences is not only ineffective but proves counterproductive, as witnessed

recently in the case of Russia. Democracy cannot (and should not) be implanted or

imposed through stringent conditionalities by external donors; it has to be imbibed and

nurtured from within. That is why there is no universal model of democracy. The

democratic processes vary from country to country because societies differ in terms of

history, culture and popular aspirations. Switzerland, for instance, developed a

decentralized, confederate system rooted in self-governance of ‘cantons’, while the UK

evolved a centralized system based on representative parliamentary democracy.

Democracy in France emerged under the influence of the church, whereas India

developed a parliamentary democratic system based on the Westminster model with a

strong emphasis on secularism. It must be noted that democratization is not a smooth

process as it can generate new conflicts based on class, caste, gender and identity.

Recent experience of democracy promotion in several nascent democracies reveals that

democratization cannot be achieved through technical approaches aimed at replicating the

western model of liberal democracy or merely through technical kits such as training for

parliamentarians, civil servants and judges. The top-down technical approach overlooks

the fact that democratization is essentially a political issue, which can only be addressed

by domestic popular mobilization. Without taking into account underlying power

relations and the socio-economic matrix, technical approaches by themselves are hardly

adequate for the realization of democracy.

One of the key components of technocratic approaches towards good governance is policy

“ownership”. In principle, one cannot disagree with the new emphasis on policy

“ownership”, but if recent experience with PRSPs is any indicator, ownership is largely

oriented towards ensuring that the borrowing countries do not lag behind in terms of

implementation. The report by UNCTAD on poverty reduction in the context of Africa stated

that ownership is restricted to the design of safety nets without touching the macroeconomic

policies and development strategies.25

After detecting the strong influence of the IMF and

the World Bank on macroeconomic issues in several PRSPs, the report questioned whether

policies are truly “owned” or merely designed to serve the requirements of donors.

The donor community cannot remain oblivious to the fact that conditionality tends to

undermine a country’s ownership of reforms rather than promote it. Ownership cannot be

imposed through financial leverage and conditionality. Ownership will remain elusive until

and unless there is a widespread acceptance of policies and political will among the

country’s political leadership and people at large. If imposed externally, it may fuel public

discontent against donor agencies for their undue interference in the borrowing countries.

25 UNCTAD, op.cit., p. 58. 15

19

Judicial reform constitutes another important component of current governance agenda

where reforms have been introduced in a technocratic manner in diverse country settings.

Not only is the agenda predominantly biased towards enforcement of private property

rights and contracts, it also disregards the complexities of legal and dispute-settlement

systems of the borrowing countries. After spending millions of dollars in projects related

to judicial reforms, the Bank’s intervention has yet to yield desired results. A survey on

judicial reform and economic development published in the Bank’s own journal called

into question the actual impact of judicial reforms on economic development.26

The

sudden imposition of formal mechanisms to resolve disputes without understanding the

specificities of the countries concerned is not an ideal solution. The IFIs have failed to

realize that a legal system, including those in the developed countries, takes decades and

centuries to develop and therefore cannot be implanted overnight. As rightly observed by

Devesh Kapur and Richard Webb, “Judicial reform illustrates several features of the way

in which the IFIs have approached governance issues. One is a combination of

impatience and a readiness to use borrowers as guinea pigs.”27

There is a growing consensus within the international aid community that a development

strategy based on decentralization and local self-governance (granting more powers to

local bodies and governments and involving local bodies and NGOs in the developmental

projects) is the key to poverty reduction and economic growth. To a large extent, the new

shift towards involving local bodies and NGOs in aid projects has to do with the earlier

disappointment with state-to- state development cooperation and the mushrooming of

NGOs in the last two decades.28

However, recent experiences show that the

decentralization agenda has little to do with genuine democratization of economic

decision-making processes since crucial matters are decided by a handful of technocrats

and political elites without any semblance of public debate and discussion.

In the name of decentralization and local self-governance, essential developmental tasks and

social responsibilities of the state are being handed over to cash-starved, non-transparent,

unaccountable NGOs and local bodies without examining their performance, capacity to

deliver and sustainability. Recent experiences also reveal that there is nothing inherently

democratic about local bodies and NGOs. Stories related to misappropriation of funds,

incompetence, and biases in favor of certain interest groups by local bodies and NGOs are

not uncommon. There are NGOs that are more accountable to donors than people at large.

Further, there are limits to which the NGOs can function effectively. Since NGOs lack the

power and legitimacy to enforce their edict, most of their efforts remain voluntary, precisely

because they cannot perform the functions of a legally constituted government. Attempts to

promote decentralization are likely to fail until and unless they restructure power relations

between government and local communities in a meaningful way.

26 R E Messick, “Judicial Reform and Economic Development: A Survey of the Issues,” The World Bank

Research Observer, Vol. 14, No. 1, February 1999, pp. 117-136. 27 Devesh Kapur and Richard Webb, op. cit., p. 11. 28 It needs to be stressed here that the IFIs encourage only those NGOs, community groups and research

institutes which are ideologically inclined towards liberal democracy and market reforms

20

Another dimension of good governance pertains to fostering popular participation.

However, participation is increasingly being viewed as a technical issue, overlooking the

fact that it is political in character. Viewed technically, participation, at best, is meant to

ensure efficient implementation of policies without any meaningful say in the decision-

making processes. The term ‘participation’ has been frequently used in several PRSPs. A

recent survey of civil society’s participation in the PRSPs in several countries reveals the

poor levels of participation in the drawing up of PRSPs and I-PRSPs.29

The survey found

that most NGOs are disenchanted with the participation processes as they were not

adequately consulted in the preparation of these papers. Common problems expressed in

the survey include lack of timely involvement, lack of information on macro-economic

issues, exclusion from discussion on important matters such as strategies, and so forth.

The emphasis on financing education and health care through “cost recovery” and

“prepayment schemes” is conspicuous in several PRSPs of Burkina Faso, Malawi,

Mauritania, Rwanda, Uganda and Tanzania. However, this approach disregards the fact

that poor people in these countries lack purchasing power to access these services and

higher user-fees for health and education services would aggravate (not reduce) poverty.

Withdrawal of the state from public services could result in denying poor people access

to basic services. The recent privatization of the Dar es Salaam Water and Sewerage

Authority (DAWASA) under the HIPC debt relief initiative demonstrates how poor

people could be excluded from an affordable clean water supply.

The governance agenda places special emphasis on anti-corruption measures, which needs

to be welcomed. However, the solution to corruption is sought through reduction in the size

of the government (in particular, downsizing of bureaucracy) by means of privatization and

deregulation. Despite massive privatization of public sector enterprises and large-scale

downsizing of bureaucracy in several poor and developing countries, the level of corruption

has not gone down. On the contrary, corruption has increased in several countries as

privatization of public sector enterprises has given new opportunities for corruption. There

are ample instances of privatization in Russia, India, Pakistan and a host of other countries

where privatization deals were executed through corrupt methods. Further, the exclusive

focus on corruption in public offices and institutions fails to chronicle the large-scale

corrupt practices carried out by private individuals and corporations. The series of financial

scams in the Indian financial markets and recent string of scandals in corporate America

are examples of corruption by big corporations in connivance with other private parties

such as fund managers, brokers, financiers, auditors and investment banks. Thus,

accountability and transparency issues are equally important for the private sector.

For good governance to be strengthened, the state must be made accountable and

democratic. It is not the size of government that matters but the quality of government. The

‘participatory budgeting’ experiment in the city of Porto Alegre, Brazil and the ‘Kerela

model’ are examples of active state involvement coupled with strong popular mobilization

and engagement in the decision-making processes by labor unions, peasant organizations

29 World Development Movement, Policies to Roll Back the State and Privatise?, London, April 2001. 16

21

and popular movements.30

It is high time that the donor community, particularly the IFIs,

recognizes the limits of development cooperation strategies that undermine the state.

Politics Matters

The current narrow technocratic approaches to governance depoliticize foreign aid and

development, converting it to a technical mechanism, which can be evaluated by

quantitative performance indicators. Some analysts have argued that by taking up

governance issues, the international aid community has shown interest in coming to terms

with political dimensions of development. But by negating the issues of politics, power

relations and interest groups, the aid agencies (particularly the IFIs) have, so far, failed to

visualize governance issues in a holistic perspective. Their resistance to admit that

governance problems are political problems stems from their ideological moorings and a

false notion of ‘political neutrality’, which delinks economic issues from politics. The

technical approaches (however technically and institutionally sound they may be) are not

sufficient in promoting good governance. Without addressing the underlying power

relations in a given society, technical approaches such as training of judges,

parliamentarians and civil servants cannot lead to any meaningful contribution to

governance issues. There is a need to steer away from the superficial boundaries of

‘technocratic consensus’ and start treating governance issues as political issues.

Put simply, politics matters. As rightly emphasized by Carlos Santiso,

“without addressing the underlying distribution of power, parliaments will likely

remain passive and judiciaries dominated by the will of omnipotent executives.

Although IFIs should not meddle in politics, they should not be politically naïve

and cannot be oblivious of the political economy context. Governance reform and

institutional development require focusing more explicitly and more rigorously on

issues of power, politics and democracy.”31

According to Carlos, what is needed is a more radical approach in which donors cede

developing countries greater control over the use of aid, within the framework of agreed-

upon objectives.”32

If the governance agenda is to succeed, there must be reciprocal institutional reforms both

within the international aid community and borrower countries. Such an approach

requires a wider vision that moves beyond recent ‘compacts’ like NEPAD. Further, it

needs to be acknowledged that addressing political dimensions of development is not

going to be an easy task as it fundamentally challenges the donors’ interventions on

governance issues and significantly the influence exercised by international power

configurations.

30

See the discussion of these initiatives in John Foster, “Crisis time: repossessing democratic space:

governance and promotion of rights in international cooperation and aid”, prepared for The Reality of Aid,

April 2003. Available at www.realityofaid.org. 31 Carlos Santiso, Governance Conditionality and the Reform of Multilateral Development Finance: The

Role of the Group of Eight, G8 Governance, Number 7, 2002, p. 29. 32 Carlos Santiso, op.cit. Fall 2001, p. 19.

22

An Agenda for Further Research and Analysis by Reality of Aid Network

The Reality of Aid (ROA) network of contributors must realize that the governance

agenda is full of inherent contradictions and dilemmas. If used technically, it may

reinforce the intellectual models and traditional donor intervention approaches relating to

development cooperation. However, if political and other important dimensions of

development are incorporated, it has not only the potential to contribute to reducing

poverty, but, equally importantly, it could also repudiate the intellectual models (for

instance, Washington Consensus) on which the one-size-fits-all development strategy

rests.

The following are a few proposals for further research, which can be carried out by the

ROA contributors. These may be treated as suggestions subject to further deliberations.

First, the ROA contributors must critically examine the governance norms of the present

international aid system. In particular, the legitimacy of the IFIs as the institutions of

global governance should be questioned. Further, it needs to be underscored how the IFIs

themselves follow undemocratic structures and norms of governance such as their voting

arrangement, veto power, lack of transparency and public participation. The intellectual

hegemony of the IFIs, particularly the World Bank, in promoting good governance

should also be dispassionately appraised.

To analyze this issue in detail, the ROA contributors could commission a study on the

governance of the IFIs. Under their Articles of Agreement, the Bank and the IMF are not

supposed to enter into policy conditionality and restructuring of the economy of the

member-countries. But both the World Bank and the IMF have expanded their policy

conditionality in the last two decades. As we have seen, not only the number of

conditions has increased but also their scope has widened beyond core monetary and

fiscal macroeconomic issues. Now with the incorporation of governance reforms, the

mandate of the IFIs has been further widened.

Despite large-scale expansion in their operations, the IFIs have yet to make any headway

on the accountability front. Under strong pressure generated by civil society, the IFIs

have undertaken paltry reforms in the last few years in terms of transparency and

consultation. Yet these reforms are not adequate for ensuring wider accountability, both

vertical (staff to Executive Board) and horizontal. Both the Bank and the Fund remain

secretive and unaccountable. They still follow an archaic practice under which the

President of the World Bank is the nominee of the US while a European nominee heads

the IMF. Voting rights in the World Bank and IMF are still governed by the archaic rules

framed in 1944. Recent efforts to instill accountability (such as World Bank Inspection

Panel, IFC Ombudsman, Independent Evaluation Office, etc.) are more of a public

relation exercise than any genuine concern for accountability since these mechanisms

lack enforcement powers.

Second, the PSRPs could also serve as the starting point for examining development

cooperation in the context of governance reforms and structural conditionalities. For

23

instance, 27 countries in Sub-Saharan Africa had prepared PRSPs or I-PRSPs and

submitted them for assessment and endorsement by April 2002.33

Since there is a

growing interest among NGOs and research groups in some of these countries to

critically appraise PRSPs, the ROA contributors might link up with the NGOs and

research institutes of these countries and use the data and information already generated

by such groups. Apart from PRSPs, the interventions by the IFIs on good governance

reforms should also be analyzed in the case of middle-income countries such as India and

Brazil. In this regard, the country-specific data could be accessed from a variety of

publicly available sources such as Country Assistance Strategies, Letter of Intent, Public

Information Notices, etc.

Third, a number of empirical research studies (including by the Bank researchers) have

already established that aid with punitive conditionalities cannot “buy” policy reforms,

especially governance reforms. By referring to existing literature coupled with case

studies, the ROA contributors could build on their 2002 Report to demonstrate why

conditionality is not an appropriate approach to strengthen good governance in the

borrowing countries. Further, the problems associated with cross-conditionality between

the IFIs should also be highlighted. They should continue to demand a considerable

rollback of conditionalities.

Fourth, while demanding a radical reform of the governance agenda, one should

emphasize that without revisiting the modes of interventions and intellectual models on

which the present agenda is firmly rooted, any attempts to reform it would remain

cosmetic in nature. In particular, the ROA contributors should explore the linkages

between good governance reforms and the neo-liberal Washington Consensus. The ROA

contributors, for instance, could highlight why other reform measures (for instance, land

reforms and reform of the international financial architecture, subsidies in the donor

countries, etc.) are not in the agenda of good governance.

Fifth, by emphasizing that current governance agenda lacks coherence and consistency,

the contours of good governance should be expanded by stressing that non-state actors

(particularly TNCs and financial markets) should also abide by the tenets of good

governance.

Sixth and lastly, the ROA researchers should critically examine the promotion of good

governance through “institutional modeling”. In particular, the one-size-fits-all strategy

has to be questioned along with demanding adequate space for borrowing countries to

develop their own governance strategies and models as per their particular cultural,

social, historical and political setting. The limitations of technocratic approaches towards

attaining good governance should be unveiled by stressing the political and other

important dimensions of governance in particular and development in general.

33

These countries were Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad,

Côte d’Ivoire, Djibouti, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Madagascar,

Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Sierra Leone, Uganda, United Republic

of Tanzania and Zambia.